Citi Slashes Baidu Target on Tough Transition

By Ben Levisohn

Baidu’s (BIDU) gained 12% during the past month–but Citi’s Muzhi Li worries that the Chinese internet company has some tough times ahead.

Daniel Maurer/dapd

Baidu has always seen itself as the gateway to the internet in China, Li says, but that role has been increasingly challenged recently by other search engines–think Qihoo 360 Technology’s (QIHU) entry into the market that has already seized 10% market share–the increase in online shopping, and the mobile internet.

As a result, Baidu has turned its attention to mobile internet and cloud computing to maintain its position, Li says. He writes:

We believe investors should reexamine their perception of the company. Following a
recent uptick (+23% from its Dec-2012 low) and also the revamp of our model, we
reiterate our Sell rating and cut our DCF-based target price on Baidu to US$90
(from US$95.10), implying 17x 2013E PE. During the transition period, we believe
Baidu could trade range-bound between US$75-US$100 (or 15-20x 2013E PE).

Clearly, the market disagrees. Baidu’s shares have gained 2.6% to $110.84 today. And in a note on China’s internet sector that rehashed some old views, Nomura’s analyst reiterated what appears to be the consensus view: The search market is strong, Baidu has 80% of the market, and a pickup in ad spending by travel and education company, among others.

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There are 4 comments

JANUARY 28, 2013 12:26 P.M.

Dave wrote:

I really don't know who is Li Muzhi. From name, it seems that he is a Chinese. Not sure he was born here or China. The point is he should move to China, and better understand Chiese matter. His Comments are so rediculous, and have no idea why Citi hired him.

JANUARY 28, 2013 1:06 P.M.

Gregg C wrote:

I guess Citi's Muzhi Li, does not quite have "the pulse" of the buyers and sellers of BIDU...http://finance.yahoo.com/q?s=BIDU -
It is up almost 3% on her recommended downgrade and SELL. What BIDU needs is more Muzhi Li's predicting lower share prices...

JANUARY 28, 2013 1:17 P.M.

Anonymous wrote:

If you check Citi's analyst (Muzhi Li) on TipRanks, you can see her measured performance since 2009. i am not sure that following her "SELL" is the best move someone can do..
It says she also recommended China easterd in Sep 2012 (which fell 38% since). all an all she has a 40% success rate( recommendations that actually outperformed the SP500)

JANUARY 28, 2013 1:42 P.M.

Dumbtrader wrote:

Hahaha, he "maintained" his sell recommendation. Against a 30% rise, what else can he do? He's been dead wrong and will continue to be wrong. The market just threw another egg on him today.

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